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Loan

Discuss the legalities of Bankruptcy Law

Loan

Postby Haye » Tue Nov 29, 2016 4:08 am

Hello

My wife and I are buying a house contract for deed or a land contract. There is a balloon payment due in a year and a half. The house is worth around 30-35,000 dollars

At the end of the contact The balloon will be around $11,000. As of right now I owe around $15,000 and am thinking about getting a personal or home loan to pay off the seller before the balloon payment is due. There is no penalty to pay off early, I am wondering if I go to get the loan if I can use what i have paid as a type of equity for the loan. My credit isnt the greatest in the world but I have $5,000 dollars to apply toward the loan which would make the loan amount only around $11,000. I am hoping for a loan of 30 months at a 7% rate which would keep my payment at $400 per month. Which is what it is now and I am able to afford it fairly easily. What do you think the best method is or how to go about getting the loan?

Thank you.
Haye
 
Posts: 42
Joined: Sun Jan 05, 2014 12:39 pm

Loan

Postby Bowdyn » Tue Nov 29, 2016 5:25 am

Hello

My wife and I are buying a house contract for deed or a land contract. There is a balloon payment due in a year and a half. The house is worth around 30-35,000 dollars

At the end of the contact The balloon will be around $11,000. As of right now I owe around $15,000 and am thinking about getting a personal or home loan to pay off the seller before the balloon payment is due. There is no penalty to pay off early, I am wondering if I go to get the loan if I can use what i have paid as a type of equity for the loan. My credit isnt the greatest in the world but I have $5,000 dollars to apply toward the loan which would make the loan amount only around $11,000. I am hoping for a loan of 30 months at a 7% rate which would keep my payment at $400 per month. Which is what it is now and I am able to afford it fairly easily. What do you think the best method is or how to go about getting the loan?

Thank you.
Bowdyn
 
Posts: 37
Joined: Sat Feb 22, 2014 5:14 am

Loan

Postby Braydon » Tue Nov 29, 2016 8:45 am

What it reads like you are proposing is the refinance of a land contract--which is done all the time.  Is your land contract registered and properly executed to comply with current local, state and fed. applicable laws?  Make sure that you have all of your ducks in a row with a properly executed land contract.  A Title or Real Estate Attorney will be able to evaluate your current land contract to make sure that all legal requirements have been covered.  Also, most lenders are looking for 12 MOS. seasoning, or 12 MOS. history of payments on a land contract before it can be considered for refinancing.  The benefit to you is that this seasoning time should allow your current appraised value to establish value used in determining your equity position for refinancing.  So, if you have made major improvements which increase the value of the property, the resulting increase in property value will count toward your loan to value ratio or LTV, which is used in determining mortgage qualifications.  

I need to ask about your credit.  What does "isn't the greatest," mean?  Have you pulled a free credit report yourself and looked at it?  I have found that as much as 30% of reported credit lines are incorrectly reported, when I interview my customers. Get those misreported issues cleaned up before you apply for your mortgage.  If you were my customer, I would look at your credit for consideration for FHA financing.  In determining underwriting acceptability, FHA has a basic premise when evaluating credit as to whether the issues on credit were a matter of bad luck or bad attitude.  So, if some major issue, not caused by you, has happened to you and caused problems with your credit, like loss of job, major health issues, etc..., and you can document 12 MOS of perfect payment history since the incident, you may be considered for an FHA loan.  The interest rate is lower and the required down payment is lower as well when compared to a similar FNMA loan product.  

I would also look at the history of payments on the land contract.  If it has been 12 MOS or more, you can use the payment history as non-traditional credit history.  In other words, you can bolster your credit by having the payment history added to your credit report.  This usually requires cancelled checks as proof of payment.  

As far as the $5000 is concerned, it might be considered a compensating factor during the underwriting phase of your application, if you use that to lower your payment, as a percentage of your gross monthly income.  However, it might also be considered positive if you leave that as a reserve liquid asset.  An Underwriter might see that as insurance against loss of income.  With a strong liquid reserve position, it makes it possible for you to continue to make your payment even if, God forbid, you lost your income.  

I think that you need to interview Loan Officers.  Look for one that has both conventional and government mortgage experience, and lots of it.  You need someone who can look at your credit and even if you can't qualify right away, will give you step-by-step instructions as to what you will need to do to get your finances in order so that you can eventually become credit worthy.  When you initially contact the Loan Officer, do not allow them to pull your credit.  Make a face-to-face appointment and bring your updated credit report with you.  Talk about not only your short term goals but also your loan term goals.  A mortgage is usually a long term commitment of between 15-30 years.  It needs to fit you financial plan for now and the future.  You will also need your last 2-3 years federal tax returns, signed and dated, your last two bank statements, you most recent quarterly statements for any investment accounts, your last 30 days pay stubs if you are a W2 employee and any documentation regarding the issues which you think an Underwriter might question, like divorce decrees and separation agreements, bankruptcy filings and discharge papers, documentation of loss of income or health issue.  You will also need your driver's license or other photo ID and your social security card. Then, only when you are really comfortable with the Loan Officer and you are ready to make application, do you allow them to pull your credit.  I advise that you wait and only let the chosen Loan Officer pull it because multiple credit inquiries can lower your credit score.

In the bigger scheme of things, getting this home in your name and out of the land contract is better for you.  You have more protection if your own mortgage is in first lien position.  If the current seller of the home has a mortgage and neglects making payments, generally, you will be forced into foreclosure and can lose all of the money you have invested in this property.  I have seen it happen too many times.  This is another reason why I would suggest having an attorney look over your contract and have it evaluated.  Even if the seller doesn't have a mortgage on your property, do you know what will happen to the property if he dies and the property goes into probate, along with the rest of his estate?  Land contracts can be very risky for the purchaser.  They are generally written to protect the seller, not the buyer.  Because of this, I strongly suggest you refinance that contract and get your own financing to protect yourself from the unknown future with the seller of your property.  
Braydon
 
Posts: 49
Joined: Sat Jan 18, 2014 5:52 am


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